Iran has angrily dissociated itself from Arab and Islamic attempts to publicise a ground-breaking initiative offering to make peace with and recognise Israel.

Officials in Tehran are furious that the Iranian flag appeared on a full-page advert, published in The Guardian and other newspapers in the Arab world and beyond, promoting the Saudi-brokered initiative, unveiled in 2002 and re-launched at the Riyadh Arab summit last year.

The plan calls for members of the Arab League to recognise Israel if Israel withdraws to its 1967 borders and agrees a just solution of the Palestinian issue and a comprehensive peace. It has also been endorsed by the Organisation of the Islamic Conference, of which Iran, along with other Muslim countries like Indonesia and Malaysia, is a member.

But the Iranian Embassy in London protests in a letter to be published in tomorrow's Guardian that the Islamic Republic objects "to any move taken by some Arab countries to push the recognition of the occupying Zionist regime in any manner, including in Islamic conferences". It describes Israel as "the illegitimate and fabricated regime" and condemns the "abuse" of the Iranian flag.

Remarks by Iran's president, Mahmoud Ahmadinejad, about Israel and the Holocaust and the suspicion that Iran is seeking to develop nuclear weapons — which it strongly denies — have attracted widespread international controversy.

Promotion of the Arab peace initiative has also hit a snag with the refusal of some Arab newspapers to publish the advertisement because it includes an image of Israel's Star of David flag, underlining just how difficult it will be to promote normalisation with Israel while the Palestinian issue is not resolved.

The Palestinian Authority launched the campaign last week by taking out unprecedented full-page ads in Hebrew-language newspapers setting out the terms of the Saudi-brokered initiative.

The pan-Arab Al Hayat newspaper, owned by Saudi Arabia, then followed suit by publishing the full text with the Palestinian and Israeli flags surrounded by those of 57 Arab and Muslim countries, the combined membership of the Arab League and the OIC.

The Jordanian daily al-Arab al-Yawm said it had rejected the advertisement because it was not prepared to reproduce the Israeli flag. Al Khaleej in the United Arab Emirates commented that money spent promoting the plan should be used "to buy food and medicine for the children of Gaza".

Israel has given a cautious welcome to the Arab plan but insists it will not accept it on a take-it-or-leave it basis and wants to negotiate with the Palestinian Authority over borders and settlements.

US president-elect Barack Obama has said privately that the Israelis would be "crazy" not to accept the initiative. Arab states and others such as the UK and EU hope it will be the centrepiece of revived peace efforts once the new US administration is in place.

Israel has been quick to condemn the ban on the peace ad by Arab papers. "While it was possible for a foreign government to place a political advertisement in Israeli papers it seems impossible for the same government to place a call for Israeli-Arab peace in a Jordanian paper, because of the Israeli flag," said a foreign ministry spokesman in Jerusalem. "Some people have a long way to go before we reach peace."